abchandler
Senior Member
- Location
- Worcs, UK
The fair market value needs to take into account that it is a second hand bike that has been used for commuting for a year.
I administer the cycle to work scheme at our place, and this was sent to me by Cyclescheme back in '06. Hope it helps:
Dear Sir/Madam
In response to your query regarding fair market value I have compiled the following information for you. I hope it answers your question but please feel free to contact me with any further enquiries regarding this, or any other, matter related to the scheme.
There should be no automatic entitlement for the employee to take ownership of the cycle and cyclists’ safety equipment at the end of the loan period. If the loan agreement (technically a hire agreement under the Consumer Credit Act 1974 (CCA)) allows for ownership of the cycle and cyclists’ safety equipment to pass to the employee upon the exercise of an option, the doing of any other specified act by either party to the agreement, or the happening of any other specified event, the resulting agreement is likely to be hire purchase in which case the tax exemption available for a loaned cycle may not be available.
However, at the end of the loan period, the employer may choose to give the employee the option to purchase the equipment. Typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership the employee must pay the employer the fair market value of the equipment. No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary. VAT will also be payable on the purchase price by the employee on the supply by the leasing company or the employer as owner of the equipment.
Alternatively, the employer may wish to allow their employees to continue to use the cycles and cyclists’ safety equipment you have supplied after the initial loan period has ended, without transferring ownership. As long as the employee continues to meet the conditions of the tax exemption no tax charge will arise.
We have created the following suggested sliding scale for early leavers. As with our final settlement value, this scale is designed to protect the employer from potentially fraudulent employees and also to appease the HMRC should they look into the employer’s handling of our scheme. The first payment band will appear quite harsh (to the employee) but has been calculated to ensure that the employee pays no more than if he or she had bought the bike outright.
The payments below are exclusive of VAT.
In all cases we would recommend that the Employee continues to hire the bike from the Employer and buys it at 12 months if possible. This way the fair market value will be depreciated to the lowest level.
If the Employee is leaving then you will be interested in recouping the outstanding payments and some fair market value. In reality, this is up to you to manage and our advice is purely in the form of guidelines created in the absence of available government information.
Please let us have your comments as we are always interested in feedback from clients.
Leaving before 3 months 30%
Leaving before 6 months 15%
Leaving before 9 months 10%
Leaving before 12 months 5%
Leaving at 12 months 2.5%
I administer the cycle to work scheme at our place, and this was sent to me by Cyclescheme back in '06. Hope it helps:
Dear Sir/Madam
In response to your query regarding fair market value I have compiled the following information for you. I hope it answers your question but please feel free to contact me with any further enquiries regarding this, or any other, matter related to the scheme.
There should be no automatic entitlement for the employee to take ownership of the cycle and cyclists’ safety equipment at the end of the loan period. If the loan agreement (technically a hire agreement under the Consumer Credit Act 1974 (CCA)) allows for ownership of the cycle and cyclists’ safety equipment to pass to the employee upon the exercise of an option, the doing of any other specified act by either party to the agreement, or the happening of any other specified event, the resulting agreement is likely to be hire purchase in which case the tax exemption available for a loaned cycle may not be available.
However, at the end of the loan period, the employer may choose to give the employee the option to purchase the equipment. Typically this would be offered at substantially less than the original value of the equipment, but to prevent a taxable benefit in kind arising as a result of the transfer of ownership the employee must pay the employer the fair market value of the equipment. No tax relief is available to the employee for the purchase so, where the price is recovered from salary, it must be deducted from their net salary. VAT will also be payable on the purchase price by the employee on the supply by the leasing company or the employer as owner of the equipment.
Alternatively, the employer may wish to allow their employees to continue to use the cycles and cyclists’ safety equipment you have supplied after the initial loan period has ended, without transferring ownership. As long as the employee continues to meet the conditions of the tax exemption no tax charge will arise.
We have created the following suggested sliding scale for early leavers. As with our final settlement value, this scale is designed to protect the employer from potentially fraudulent employees and also to appease the HMRC should they look into the employer’s handling of our scheme. The first payment band will appear quite harsh (to the employee) but has been calculated to ensure that the employee pays no more than if he or she had bought the bike outright.
The payments below are exclusive of VAT.
In all cases we would recommend that the Employee continues to hire the bike from the Employer and buys it at 12 months if possible. This way the fair market value will be depreciated to the lowest level.
If the Employee is leaving then you will be interested in recouping the outstanding payments and some fair market value. In reality, this is up to you to manage and our advice is purely in the form of guidelines created in the absence of available government information.
Please let us have your comments as we are always interested in feedback from clients.
Leaving before 3 months 30%
Leaving before 6 months 15%
Leaving before 9 months 10%
Leaving before 12 months 5%
Leaving at 12 months 2.5%
